by Brian Swerdlow
Anchor Financial
If you’re nearing retirement, you may be considering purchasing an annuity to provide more safety and stability to your portfolio. Indeed, an annuity can be a fantastic safe money option that provides a reliable income stream in your retirement years.
However, annuities, while they are indeed a powerful tool in retirement planning, are also somewhat complicated. Before contacting an annuity specialist, it’s wise to do some research yourself. One way to get smarter about annuities is to understand some of the most common mistakes annuity purchasers make.
Failure to understand what you want your annuity to do. Many people experience monetary losses in retirement simply because they have no clear vision of their relationship to their money and their feelings about risk. You must evaluate your attitudes and beliefs about money and assess your current and future needs honestly. Not only will gaining these clarifications help you evaluate annuity contracts, but it will also help you make more informed decisions about other aspects of your financial life. Remember that you should always buy any financial product for what it will do for you, not for what a salesperson tells you it might do.
Purchasing the first annuity presented. Even when you have a clear idea of what you want your money to do, you can quickly become confused by all the many available options. If you want an annuity anchoring the safe money part of your portfolio, it’s wise to:
- Research multiple companies and compare their offerings before making a decision.
- Shop around, being sure to check out the issuing company’s reputation and rating.
- Avoid settling for the first offer you get.
Not understanding the basics of the product. As I mentioned, annuities can be complicated. That’s why an annuity specialist who takes time to understand your individual needs and make suitable recommendations is worth their weight in gold. Still, it is beneficial to learn some of the essentials of annuities before speaking to an advisor. For example, you should know the types of annuities available, including fixed, variable, and indexed contracts, and understand the pros and cons of each. You don’t need to spend hours becoming an expert. Learn enough to ask the right questions and feel more confident during the sales process.
Not realizing that some annuities have fees. Certain annuities have fees that could potentially affect your account’s value. If your advisor recommends this kind of annuity, you should understand all the associated costs and any impact on your savings. Make sure that your advisor shows you the bottom line of how fees related to the recommended annuity will impact your account over time.
Not understanding how annuities are taxed. Tax-deferred annuities give you a way to reduce your taxable income by using pre-tax funds to purchase them. When you start withdrawing money, your annuity will incur taxes, regardless of the type purchased. How much your tax bill is will depend on whether you bought an annuity with pre-tax or after-tax dollars. You must know the tax implications before buying any financial product, including an annuity.
Putting ALL your savings into one basket. Seniors who discover annuities sometimes become enamored with the product’s ability to create guaranteed lifetime income, protect principal, or provide for long-term care needs. Those are fantastic benefits gained from adding an annuity to your retirement plan. However, it would be best if you didn’t become so drawn to annuities that you over-invest. Portfolio diversification is wise in any financial life phase, particularly in retirement. A general rule of thumb is to invest no more than 25-30% of your assets into an annuity.
Failure to understand surrender charges. Many annuities come with surrender charges that kick in if you cash out before a specific time. Make sure you know of any charges or fees before making a purchase.
Not knowing your distribution options. Annuities come with different distribution options. Each option has pros and cons that could impact you, your spouse, and any beneficiaries. Sit down with your advisor and have them carefully explain each distribution choice and its implications.
Summing it up: Annuities are often an ideal addition to retirement portfolios. However, they’re not suitable for everyone, and mistakes when buying annuities are common. Make sure you partner with a fiduciary retirement and income planner who can help determine if an annuity is right in your situation. If you’d like more information or a confidential review of your retirement plan, contact my office, and I will help you get the answers you need
https://www.anchorfinadv.com/index.html#contact or call (847) 604-0090
Find Brian on Linked In:linkedin.com/in/brian-swerdlow-141a238
Anchor Financial Advisors Website: anchorfinadv.com
